Tobin Smith at ChangeWave gives a nice summary of why the LiveDoor scandal caused such a ruckus in Japan. Anyway, it sounds more like the Martha Stewart scandal, not Worldcom or Enron…
The company is Livedoor, and the dude is 33-year-old Takafumi Horie, the firm’s president and chief executive. Fuji TV reported Livedoor is suspected of giving false information about a subsidiary in an alleged effort to improperly boost stock prices.
But why the panic sell-off?
Well, first let me say that I have read about this guy for some time in the Financial Times, so I know a few things about him.
One is that he is a big celebrity in Japan, especially on TV talk shows, which are HUGE there. His core audience is the younger workers whose only experience in the stock market before Horie came on the scene had been watching stocks go down in value for 14 years.
Horie is heralded as a hero by many up-and-coming Japanese for his success in starting up Livedoor in 1997, and for challenging Japan’s old fart business elite with his bold buy-out fiascoes. Basically he is a big pain-in-the-behind for the old guard Japanese businessmen and their style of doing business. The fact that he prefers T-shirts over suits and ties on TV is all you really have to know about this guy.
But another thing I learned from FT months ago is that he runs one of the most-widely read blogs in Japan, which I read every once in a while. (Translated, of course — way to go Google.) In his blog he is a combination of Oprah Winfrey and Jim Cramer to legions of his clones — his personal diary is the most-read blog in Japan!
Livedoor makes its money in various Internet services, including consulting, telecommunications, mobile sites and software development. But the company has also bought up chunks of other companies by offering a ton of its stock, which has surged in recent years, selling mostly to these young, disenfranchised Japanese workers.
So, sports fans, when the Tokyo Stock Exchange closed down for a while on an order imbalance, I KNEW why — it wasn’t anything fundamental.
MAINTAINING GLOBAL AWARENESS
This was the classic slaughtering of the lambs.
These clones who follow this guy like a cult saw him do the "perp" walk last night, and ran for the hills — using market sell orders, I’m sure, to sell everything they owned in a panic.
Livedoor is a symbol of young Japanese investors emerging from their bomb shelters (i.e., the black hole that owning stocks had been in Japan), and when that symbol is on every TV set in Japan (and believe me, there are LOTS of TV sets in Japan) doing a Ken Lay/Enron imitation, the shock and awe was too much to handle.
My point?
Our little market meltdown (the Yahoo!, Google, Intel thud) got crazy and overdone this morning because of THEIR market meltdown. Without context of what the Livedoor situation really was, many investors would have sold first and thought about it later.
You can’t afford to be economically "contextless" — i.e., be caught flat-footed because an economic event is happening 10,000 miles away that you have never heard of.
That’s what the FT does for me — it helps me maintain a global context.
And friends, as the last few years have taught us, many of the successful investment decisions we have made came from economic context OUTSIDE of the United States.
Investment decision making went global years ago — you have to plug in globally, too, or you will make bad decisions for lack of global economic context.
It really, really is a small world after all.